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income statement for data segments of an organization

1. When an income statement shows data for segments of the organization, and data for each segment are added together to get totals for the whole organization:
A. all expenses should be allocated to the segments.
B. common fixed expenses should be allocated to the segments.
C. only direct revenues and direct expenses should be assigned to segments.
D. direct fixed expenses should be subtracted as one amount in the "total" column.

2. The operating budget depends on key information developed in the:
A. cash forecast.
B. sales forecast.
C. labor forecast.
D. operating forecast.

3. Which of the following qualitative factors favors the buy option in the make or buy decision?
A. Production scheduling.
B. Utilization of idle capacity.
C. Ability to control quality.
D. Technical expertise of supplier.

4. A favorable materials quantity variance would occur if:
A. more material is purchased than is used.
B. actual pounds of materials used were less than the standard pounds allowed.
C. actual labor hours used was greater than the standard labor hours allowed.
D. actual pounds of materials used was greater than the standard pounds allowed.

5. The raw materials budgeted to be purchased for the period is equal to:
A. ending inventory + raw material used -beginning inventory.
B. ending inventory + ending inventory -raw material used.
C. beginning inventory -ending inventory + raw material used.
D. beginning inventory + raw material used -ending inventory.

6. The cost of capital used in the capital budgeting analytical process is primarily a function of:
A. ROE.
B. ROI.
C. the cost of acquiring the funds that will be invested.
D. the discount rate.

7. The part of the variable overhead budget variance due to the difference between actual hours required and standard hours allowed for the work done is called the:
A. variable overhead spending variance.
B. variable overhead budget variance.
C. variable overhead efficiency variance.
D. variable overhead volume variance.

8. The kind of standard that is most useful for planning and control is:
A. an attainable standard.
B. an ideal, or engineered, standard.
C. a negotiated standard.
D. a past experience standard.

9. Which of the following is typically not important when calculating the net present value of a project?
A. Timing of cash flows from the project.
B. Income tax effect of cash flows from the project.
C. Method of financing the project.
D. Amount of cash flows from the project.

10. The key difference between a controllable cost and a noncontrollable cost is:
A. the large amount of the cost.
B. the frequency of cost incurrence.
C. the short term ability to influence the cost by the manager.
D. whether the cost is fixed or variable.

11. An important reason for imposing a minimum cash balance in the cash budget is:
A. it provides a cushion that can absorb forecast errors.
B. it provides extra funds for managers to spend.
C. it makes the balance sheet look better.
D. all of the above.

12. In order to calculate the net present value of a proposed investment, it is necessary to know:
A. the cash flows expected from the investment.
B. the net income expected from the investment.
C. the interest rate paid on funds borrowed to make the investment.
D. the cash dividends paid on the stock each year.

13. When analyzing end of period production cost variances, which of the following product cost components will not need "flexing"?
A. direct material.
B. direct labor.
C. variable manufacturing overhead.
D. fixed manufacturing overhead.

14. The operating expense budget is based on the:
A. sales budget.
B. production budget.
C. manufacturing overhead budget.
D. cash budget.

15. Sometimes when management decisions are reached the investment project with the highest NPV or IRR is not selected. This occurs because:
A. a lower IRR is a less risky investment.
B. the highest NPV is not necessarily the highest IRR.
C. qualitative factors override quantitative analysis techniques.
D. sometimes management makes the wrong decision.

16. If the net variance of a business using standard costing is significant relevant to total production cost, the net variance should be:
A. assigned to cost of goods sold.
B. allocated between work in process, finished goods, and cost of goods sold.
C. carried forward to the next accounting period.
D. none of the above.

17. Which of the following statements is true regarding the payback period?
A. The time value of money is considered when calculating the payback.
B. The payback analysis is more accurate than the net present value analysis.
C. The payback period is less accurate than the accounting rate of return.
D. The time value of money is not considered when calculating the payback.

18. Fixed costs classified according to the time frame perspective are known as:
A. direct cost and indirect cost.
B. constant and inconsistent cost.
C. committed cost and discretionary cost.
D. product cost and period cost.

19. How is performance evaluated for a cost center?
A. Actual costs incurred compared to budgeted costs.
B. Actual segment margin compared to budgeted segment margin.
C. Comparison of actual and budgeted return on investment (ROI) based on segment margin and assets
controlled by the segment.
D. None of the above.

20. A sunk cost is a cost that:
A. has been incurred and cannot be eliminated.
B. is never relevant in decision-making.
C. is never a differential cost.
D. all of the above.

21. The development of the operating budget is complete when:
A. the sales forecast for next year is complete.
B. the budgeted cash flow statement is complete.
C. the budgeted income statement is complete.
D. the budgeted balance sheet is complete.

22. A variance is the difference between actual costs and:
A. selling price.
B. expected costs.
C. activity-based costs.
D. historical costs.

23. Which of the following is not an important qualitative factor to consider in the capital budgeting decision?
A. Regulations that mandate investment to meet safety, environmental, or access requirements.
B. Technological developments within the industry may require new facilities to maintain customers or
market share at the cost of lower ROI for a period of time.
C. Commitment to a segment of the business that requires capital investments to achieve or regain
competitiveness even though that segment does not have as great an ROI as others.
D. All of the above are important qualitative factors to consider.

Solution Preview

1. When an income statement shows data for segments of the organization, and data for each segment are
added together to get totals for the whole organization:
A. all expenses should be allocated to the segments.
B. common fixed expenses should be allocated to the segments.
C. only direct revenues and direct expenses should be assigned to segments.
D. direct fixed expenses should be subtracted as one amount in the "total" column.

Guidance: C - allocating common fixed creates distortion in segment profits.

2. The operating budget depends on key information developed in the:
A. cash forecast.
B. sales forecast.
C. labor forecast.
D. operating forecast.

Guidance: B - the sales forecast sets the stage in terms of demand and volume of activity for the amount of production, purchasing, labor, overhead and other business costs.

3. Which of the following qualitative factors favors the buy option in the make or buy decision?
A. Production scheduling.
B. Utilization of idle capacity.
C. Ability to control quality.
D. Technical expertise of supplier.

Guidance: D - if the supplier has special skills that favors the buy option

4. A favorable materials quantity variance would occur if:
A. more material is purchased than is used.
B. actual pounds of materials used were less than the standard pounds allowed.
C. actual labor hours used was greater than the standard labor hours allowed.
D. actual pounds of materials used was greater than the standard pounds allowed.

Guidance: B - quantity variance compares used to what "should have been used" which is the standard quantity

5. The raw materials budgeted to be purchased for the period is equal to:
A. ending inventory + raw material used -beginning inventory.
B. ending inventory + ending inventory -raw material used.
C. beginning inventory -ending inventory + raw material used.
D. beginning inventory + raw material used -ending inventory.

Guidance: A - buy what you expect to use and the "cushion" ending you want to avoid overstock less what you already have on hand

6. The cost of capital used in the capital budgeting analytical process is primarily a function of:
A. ROE.
B. ROI.
C. the cost of acquiring the funds that will be invested.
D. the discount rate. ...

Solution Summary

Guidance (a sentence or two) is given with each recommendation choice.

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